McDonald's Isn't Lovin' February's Comps

McDonald's continues to show weak comps in 2014. Can the year improve while McDonald's faces increased competition from Wendy's, Burger King, and Yum! Brands?

Mar 15, 2014 at 1:15PM


Source: McDonald's .

McDonald's (NYSE:MCD) reported February comparable-store sales on Monday with an overall decline of 0.3% for the month. February's results were worse than the prior month's report, which the company had forecast to be weak. The continued weakness indicates that McDonald's still hasn't moved past the menu issues that plagued the chain's performance in 2013. Similar menu issues could lead to a weaker year for Wendy's (NASDAQ:WEN) as well. 

The largest comps loss by segment in February was a 2.6% drop for APMEA -- Asia/Pacific, Middle East, and Africa. APMEA had reported comps growth of more than 5% in January and it was the strongest performer that month. McDonald's blamed the change on weakness in Japan and negative comps in Australia. Europe was the only segment up in February with 0.6% growth -- down from the 2% growth in January. Domestic comps were down 1.4%, which did improve on the prior month's more than 3% drop. 

Will McDonald's weak start continue through the year? 

Menu misses 
McDonald's admitted that its performance last year suffered from the introduction of too many menu items in a short period of time, which complicated inventory and kitchens, slowing wait times. Many of these new menu items also proved unpopular.  

Earlier this month, Bloomberg reported that McDonald's slashed the price of the unpopular Mighty Wings by 40%. The deal will remain in place until the chain's inventory runs out, which could take a while considering that the company ended last year with about 10 million pounds of frozen wings on hand -- or about 20% of the stock ordered when the wings launched in September. It's likely that the company is taking a loss to move the stock out of its freezers.

Menu issues related to new product launches weren't limited to the Mighty Wings -- or to McDonald's. Wendy's could face similar conditions this year if the company continues to embrace a whirlwind schedule of menu releases.

The Pretzel Bacon Cheeseburger that Wendy's launched last summer led to third-quarter comps growth of nearly 6% at company-owned stores -- the highest quarterly comps since 2005. However, the specialty burger -- and its sister chicken sandwich -- were ushered off the menu in favor of a brioche-bun update on a previously released limited-time-only mushroom burger. This was followed by two value-menu chipotle burgers and, more recently, the Premium Cod sandwich.     .

Wendy's predicts comps of 2.5% to 3.5% in 2014. That's an optimistic range considering that the chain started 2013 with comps that looked more similar to those of McDonald's. Those types of annual comps would require most of the limited-time items to perform like the Pretzel Bacon Cheeseburger. That seems unlikely. 

While Wendy's has followed McDonald's path of making questionable menu decisions, McDonald's has followed Wendy's in restructuring its value menu. Will the change help comps?

New value 
In November, McDonald's announced that it had changed its Dollar Menu to the more inclusive Dollar Menu & More, which features products at a variety of prices. Wendy's has a similar structure in place with its Right Price Right Size menu

However, the change might not help boost McDonald's comps going forward. Between 2004 and 2011, McDonald's annual comps growth averaged about 6%. It's not a coincidence that the company's comps started suffering as the economy improved. Competition has always been fierce between the fast-food restaurants, but now customers have more economic confidence and they increasingly make menu selections based on taste rather than value. 

So a more robust value menu might not prove the draw it was in prior years.

Will McDonald's recover in 2014?
The company's at least stepping in the right direction by simplifying the menu and getting the Mighty Wings off freezer shelves. McDonald's also shuttered the McResource employee-assistance website, which was proving to be a public relations disaster with its unrealistic monthly budget that showed a full-time worker couldn't live off the company's wages and advised against eating unhealthy fast food. 

Bk Big King

Source: Burger King.

The market became even more competitive over the latter part of last year as Wendy's found some limited-time item success. Burger King (NYSE:BKW) posted a surprisingly good fourth quarter with global comps growth of nearly 2% and domestic comps up 0.2%. The company attributed the growths in a widely weak quarter to the launches of the Big King and BBQ Rib sandwiches, which are essentially Burger King's versions of McDonald's Big Mac and McRib.

Also, Yum! Brands' Taco Bell is launching a breakfast menu. The idea could flunk out with customers, but even a slight erosion of McDonald's breakfast traffic would further harm its comps. 

Foolish final thoughts 
The addition of numerous menu items -- often limited-time offers -- carries inherent risks. Inventory inflates and the potential performance of each item can become cannibalized by concurrent launches. McDonald's would do well to keep paring back the new menu items. However, economic confidence could still keep McDonald's comps lower than they were during the recession.  

Fast food isn't grilling up steady growths 
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers